J. Patrick “Rick” Michaels, the globe-trotting investment banker with deep roots in cable and broadcasting, is teaming up with former U.S. attorney general John Ashcroft to build businesses in a new sphere for Michaels: global security.
Michaels, the chairman and CEO of Communications Equity Associates, and Ashcroft, who heads consultants The Ashcroft Group, are expected to announce the formation of AshcroftCEA on Tuesday Nov 6.
Michaels said Friday that the new venture would look to acquire a “platform company” in the global defense or homeland security realm, one dependent on contracts from a reliable customer: the government. Possible categories include port security, communications, data security and border security.
CEA, which Michaels founded in 1973, has connections around the globe: at its peak, in 2000, it employed 200 people in 11 different countries. “CEA’s done business in 60 countries, people don’t realize that,” he said in a phone interview. “I’ve been in 110.”
He still travels 250 days a year, he said.
Michaels said the JV would leverage CEA’s and Ashcroft’s connections to buy a company for perhaps $150 million to $500 million, make other “bolt-on” acquisitions and also grow by obtaining new contracts around the world and diversifying business lines.
“The real value is in finding something that you can add onto and build,” he said. And CEA is in good position to identify acquisition targets and obtain the financing.
CEA likes the government services sector. For one thing, acquisition targets typically sell for 3.5 to 6 times annual cash flow, well below the multiples of media companies. They generate cash flow, “and the vast majority of the money is coming from the U.S. government,” Michaels said. The government is very credit worthy.
“You have to change with the times,” the CEA chief said. “Homeland security, unfortunately, is something that’s not going to go away.” No matter who’s in the White House.
AshcroftCEA has a Web site up already – www.ashcroftcea.com – and has 10 employees dedicated to it from the respective JV partners. Ultimately it will have its own staff, Michaels said.
Later AshcroftCEA could put together an investment fund. But the better way to enter the business is through a platform company, Michaels said.
Michaels said CEA hasn’t hosted its famous (in the industry) annual golf outings in Ireland for years, and the U.S. deals have slowed to the point where only he and long-time associate Bob Berger are still working them, from Tampa, Fla. Michaels also noted the untimely death of longtime associate Ed Frazier, a Cable TV Pioneer, in January 2006, after a brief illness at age 57.
But CEA is still doing cable deals, he said, mostly internationally, and has done some work with John Malone’s Liberty Media, with whom Michaels has dealt many times over CEA’s 34 years.